Tax Type
Corporation Income Tax
Description
Consolidated Returns
Topic
Returns/Payments/Records
Date Issued
06-17-1994
June 17, 1994
Re: Ruling Request: Corporate income taxes
Dear***********
This will reply to your letters of June 1, 1994 and September 14, 1993. in which you have requested a ruling on behalf of****************** ("the Taxpayer"). I apologize for the delay in responding.
FACTS
The Taxpayer and subsidiaries have been filing Virginia income tax returns on a consolidated basis since 1979. The Taxpayer and subsidiaries are required by Va. Code § 58.1-418 to use a single factor apportionment formula. Company A, which is affiliated with the Taxpayer within the meaning of Va. Code §58.1-302, is required to use the statutory three factor apportionment formula and accordingly was not included in the Taxpayer's Virginia consolidated return. Company A has filed separate Virginia returns since 1972. The Taxpayer and subsidiaries wish to file a consolidated Virginia tax return with Company A retroactively beginning with the 1990 taxable year.
The Taxpayer has also requested a clarification of its filing status for 1993 and thereafter. During 1992, the only members of the Virginia affiliated group were merged together, leaving a single corporation filing a "consolidated" Virginia return in 1993.
RULING
Permission to change to or from the consolidated filing method is generally not granted by the department, because this change can affect the apportionment factors and possibly distort the reporting of the portion of business done in Virginia.
Effective for taxable years beginning on or after January 1, 1990, Chapter 619 of the 1990 Acts of Assembly (HB 159) allows affiliated corporations utilizing different apportionment factors to be included in a Virginia consolidated return.
The Taxpayer and Company A have been filing on a different basis and cannot file a consolidated return as one group for years prior to 1993 unless permission is granted. (For taxable years beginning on and after January 1, 1993, VR 630-3-442 requires all affiliates to join a consolidated return previously elected by any members of the group.) Although permission to change to or from consolidated filing is rarely granted, HB 159 was intended to apply to affiliated groups previously denied Virginia consolidated filing status solely due to mixed apportionment factors between members.
Pursuant to its order of January 19, 1993 adopting VR 630-3-442, the department indicated that it would grant a timely request to change to consolidated filing by a group including corporations required to use different apportionment factors, retroactive to taxable years beginning on and after January 1, 1990. For this purpose, a request is considered timely if it is filed within one year of March 10, 1993, the effective date of the regulation.
Because of the legislative intent, and the facts and circumstances of this case, the Taxpayer and Company A are hereby granted permission to file a consolidated return for the 1990 taxable year and thereafter.
The consolidated apportionment factor for affiliates required to use different factors shall be determined in accordance with Public Document 91-244 (10/7/91), copy attached, for taxable years beginning on or after January 1, 1990, but before January 1, 1993. The consolidated apportionment factor for affiliates required to use different factors shall be determined in accordance with 7 of VR 630-3-442, copy attached, for taxable years beginning on or after January 1, 1993.
With respect to the filing status for 1993 and thereafter, the department has previously ruled that a new filing election is permitted when an affiliated group filing a Virginia consolidated return is reduced to a single corporation filing in Virginia for an extended period of time. See Public Document (P.D.) 93-72 (3/18/93) copy attached. In that ruling, tax returns for four (4) full taxable years were filed with a single Virginia member. However, the ruling did not state how many years needed to elapse before a new election would be permitted.
As previously stated, the department has a long-standing policy which prohibits changes to or from the consolidated filing method.
Also, the department finds that it is fairly common for corporations to have nexus for Virginia purposes on a sporadic basis. Accordingly, it is reasonable for the department to require a minimum amount of time during which only a single corporation files a Virginia return before allowing a new filing election. The department believes that two full taxable years is a reasonable period.
Accordingly, if the Taxpayer's group has only one corporation which is required to file a Virginia return for 1993 and 1994, the department will allow the election of a new Virginia filing method for taxable year 1995 or thereafter if additional affiliates are added or become subject to tax in Virginia after 1994.
Sincerely,
Danny M. Payne
Tax Commissioner
Rulings of the Tax Commissioner